April 29, 2025

“Markets have begun to panic about the real-world impact of the tariffs, with stresses already showing up in the supply chain and the US and China both waiting for each other to blink. That gave the dollar another excuse to weaken yesterday. The focus now, however, is on the labour market.”

Sam Cornford – Head of Trading

USD

The dollar sold off again yesterday as investors became increasingly concerned that it might be too late to prevent serious tariff disruptions to the US economy. With the 100+% tariffs amounting to a de facto trade embargo between the US and China, their game of trade chicken is still ongoing despite some softening in the tone over recent weeks. The US continues to claim that it has engaged in trade talks with China, and China continues to argue that no such thing has occurred. Treasury Secretary Bessent reiterated yesterday that it was ‘up to China to de-escalate’, because its exports comprise a much larger share of the two countries’ trade. The impact is beginning to show clearly in the data – China-US shipping volume has fallen off a cliff in the last 10 days, the US trucking industry is beginning to take a hit, and CEOs’ guidance has been overwhelmingly negative and focused on cost-cutting to offset the impact of tariffs on their bottom lines. In addition, while the Dallas Fed Manufacturing Index is a data point that is rarely worth touching on, it was a huge disappointment yesterday, with the business outlook and activity indexes slumping to post-pandemic lows.

The JOLTS and consumer confidence surveys are the focus today. Job openings are expected to be relatively stable at 7.5M, but consumer confidence will probably fall even further from its four-year low posted last month. If anything is going to give the Fed some urgency to cut rates, it will be the labour market – any scary signals in the JOLTS report could hurt the dollar.

CAD

Carney’s Liberals look set to lead a minority government after yesterday’s vote, and USD/CAD is quite choppy this morning. A forced coalition government is generally a bad thing for currencies because it paralyses the party in charge and slows the decision-making process – something which is not ideal when trying to navigate trade negotiations with the US. This has triggered some initial weakness for the loonie.

GBP

Sterling rode some dollar weakness to a three-year high above 1.34 overnight and has now recovered almost 3% from its trough against the euro two weeks ago. Very little has changed for the UK’s economic fundamentals in recent weeks, and the Bank of England has broadly stuck to its more hawkish stance – the pound’s outperformance compared to the euro is more to do with the increasingly dovish picture emerging at the ECB.

EUR

The euro gained against a softer dollar yesterday but underperformed most of its peers. ECB policymaker rhetoric has increasingly convinced markets that another three rate cuts are coming this year, particularly with several floating the idea of a 50bp move if the trade situation deteriorates. Several have also made comments on the euro’s strength, with Rehn mentioning that it adds a layer of complexity to the inflation outlook and hurts exporters already suffering with tariffs. The power cuts across Portugal and Spain might have impacted at the margin and sparked some concern about the resiliency of their energy infrastructure, but this is unlikely to have any major effect on currency. Spanish CPI this morning was slightly higher than expected at 2.2%, but GDP growth was slightly weaker than forecast at 0.6% in Q1, though that still makes Spain one of the fastest growing advanced economies.

Markets

Stocks were very mixed yesterday, and the major indexes ended broadly flat. Investors will begin to take their cues from the US data and Mag7 earnings over the next few days.

Main Economic Events (All Times CET)

9:00am: Spanish CPI
4:00pm: US JOLTS Job Openings & Consumer Confidence

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